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LH

Landsea Homes Corp (LSEA)·Q2 2024 Earnings Summary

Executive Summary

  • Strong top-line growth: total revenue rose 47.0% year over year to $431.1M on 41% higher deliveries (760 units) and a 2% ASP increase; adjusted EBITDA jumped to $42.8M, while GAAP EPS of $0.08 reflects one-time financing cost write-off; adjusted EPS was $0.36 .
  • Delivery beat and Q3/Q4 setup: Q2 deliveries materially exceeded Q1 guidance (600–650); management guided Q3 deliveries of 625–700 and Q4 deliveries of 1,000–1,100, with adjusted gross margins improving to 23–24% in Q4 on mix, easing incentives, and new community contributions .
  • Margins mixed: GAAP home sales gross margin was 14.9% (below low end of Q1 guidance) due to a larger-than-expected purchase price accounting impact (2.1 pts) and elevated incentives (~6% of revenue); adjusted home sales gross margin was 21.1% .
  • Balance sheet actions and deleveraging focus: net debt/capital increased to 45.4% post-Antares, revolver recast extended maturities to 2027; management targets cash generation and SG&A leverage (13% of home sales revenue in Q2; plan to reach 11–12% next year) to reduce leverage .
  • Demand solid with incentives as key tool; average selling communities up 47% YoY, orders up 34.5% YoY with 3.0/month absorption; catalysts include sustained order momentum, cycle-time improvements, and Q4 margin expansion guidance .

What Went Well and What Went Wrong

What Went Well

  • Delivery outperformance and scale benefits: 760 deliveries (+41% YoY) on faster cycle times and higher community count; SG&A ratio improved 220 bps YoY to 13% on scale and efficiency initiatives (“our teams did an excellent job of accelerating build schedules”) .
  • Orders and community growth: net new orders +34.5% to 760, absorption 3.0/month; average selling communities +47% YoY (84.0), reflecting successful market expansion and acquisitions .
  • Adjusted profitability and Q4 margin outlook: adjusted net income rose to $13.3M, adjusted EPS $0.36; management expects adjusted gross margin to reach 23–24% in Q4 driven by geographic mix, lower incentives, and new community contributions .

What Went Wrong

  • GAAP margin pressure: home sales GAAP gross margin of 14.9% came in below guidance due to larger-than-expected purchase price accounting (2.1 pts) and elevated incentives (~6% of revenue) .
  • Affordability-driven incentives: financing incentives remained elevated to sustain sales momentum amid rate volatility, weighing on gross margins and ASP dynamics in certain markets .
  • Leverage increased with acquisitions: debt-to-capital rose to 52.8%, net debt-to-capital to 45.4% post-Antares; management emphasized deleveraging via cash generation through year-end .

Financial Results

MetricQ4 2023Q1 2024Q2 2024
Total Revenue ($USD Millions)$397.6 $294.0 $431.1
Home Sales Revenue ($USD Millions)$379.7 $292.6 $418.2
Deliveries (Units)664 505 760
ASP ($USD Thousands)$572 $579 $550
Diluted EPS (GAAP) ($)$0.33 $0.01 $0.08
Adjusted EPS ($)$0.43 $0.06 $0.36
Home Sales Gross Margin (GAAP, %)15.9% 14.9% 14.9%
Adjusted Home Sales Gross Margin (%)20.8% 19.4% 21.1%
Adjusted EBITDA ($USD Millions)$40.3 $17.0 $42.8

Segment breakdown – Home Deliveries and Home Sales Revenue (Q2):

RegionQ2 2023 HomesQ2 2023 Revenue ($MM)Q2 2023 ASP ($k)Q2 2024 HomesQ2 2024 Revenue ($MM)Q2 2024 ASP ($k)
Arizona160 $70.6 $441 213 $96.3 $452
California115 $99.5 $865 139 $134.2 $966
Colorado———24 $10.2 $425
Florida264 $121.4 $460 285 $130.0 $456
Metro New York———1 $4.5 $4,475
Texas———98 $43.0 $439
Total539 $291.5 $541 760 $418.2 $550

Key KPIs

KPIQ4 2023Q1 2024Q2 2024
Net New Orders (Units)398 612 760
Net New Orders ($USD Millions)$218.9 $341.3 $389.8
ASP of Orders ($USD Thousands)$550 $558 $513
Monthly Absorption (Sales/Community)2.2 3.3 3.0
Cancellation Rate (%)13% 10% 11%
Average Selling Communities60.0 62.6 84.0
Backlog (Units)517 624 694
Backlog ($USD Millions)$335.6 $384.3 $391.1
Backlog ASP ($USD Thousands)$649 $616 $564

Balance Sheet Highlights

MetricQ4 2023Q1 2024Q2 2024
Total Debt ($USD Millions)$543.8 $585.2 $754.1
Liquidity ($USD Millions)$431.3 $364.1 $330.2
Debt/Capital (%)44.1% 46.4% 52.8%
Net Debt/Capital (%)30.4% 35.3% 45.4%
Book Value/Share ($)$17.88 $17.92 $17.94

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/ActualChange
Deliveries (Units)Q2 2024600–650 760 actual Raised/Beat
Delivery ASP ($k)Q2 2024$525–$530 $550 actual Raised/Beat
GAAP Home Sales Gross Margin (%)Q2 202415–16% 14.9% actual Lower/Miss
Adjusted Home Sales Gross Margin (%)Q2 202420–21% (Q1 text references adjusted GM ranges for full year; Q2 actual provided) 21.1% actual In-line
Deliveries (Units)Q3 2024N/A625–700 New
Delivery ASP ($k)Q3 2024N/A$495–$510 New
Adjusted Home Sales GM (%)Q3 2024N/A20–21% New
GAAP Home Sales GM (%)Q3 2024N/A~15% New
Deliveries (Units)Q4 2024N/A1,000–1,100 New
Delivery ASP ($k)Q4 2024N/A$495–$510 New
Adjusted Home Sales GM (%)Q4 2024N/A23–24% New
GAAP Home Sales GM (%)Q4 2024N/A18–19% New
SG&A Ratio Target (%)FY 2025N/A11–12% (target) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23 and Q1’24)Current Period (Q2’24)Trend
Incentives & AffordabilityElevated incentives; full-year GAAP GM 17–18%; spring sales supported by mortgage buydowns Incentives ~6% of revenue; modest easing into July as 10Y fell; margins weighed below guidance Moderating slightly but still a headwind
Cycle Times & OperationsImproving labor/material availability; spec strategy to close within ~60 days Cycle times ~7 months on average (some 4.5 months), enabling ~2 turns per year; operational velocity emphasized Accelerating turns, operational efficiency improving
Geographic Mix & ExpansionAntares acquisition to scale DFW; Austin/Colorado building momentum Florida, Arizona, California led deliveries; DFW contribution ramping, new community openings to aid Q4 margins Diversification improving margins/scale
SG&A LeverageSG&A path toward 10–12% over time SG&A 13% in Q2; $5M run-rate savings from 30 position reduction; target 11–12% next year Positive leverage trajectory
Leverage & Capital StructureIssued $300M notes (2029), revolver refinanced; temporary leverage uptick with M&A Net debt/cap 45.4%; revolver recast, maturities to 2027; focus on deleveraging via cash Near-term higher leverage, plan to reduce
Pricing & ASPAbility to raise prices 1–5% in several markets despite buydowns Targeted price increases continue; higher pricing on dirt starts and premiums; ASP mix varies by region Selective pricing power persists
Land Strategy (Asset-light)Land banking/optioned lots to reduce capital at risk 57% lots controlled; longer-term aim to be more land-light; sticky land pricing More controlled lots, disciplined sourcing
Buyer PsychologyEntry-level focused on monthly payment; higher ASP markets focus on rate Buydown programs ubiquitous; buyers prioritize quick move-ins and payment; limited fear-based objections Stable demand with incentives

Management Commentary

  • “Landsea Homes posted another quarter of strong top-line growth… home sales revenue of $418.2 million… deliveries totaled 760 units… net new orders… 34.5% more than second quarter of 2023” (CEO, John Ho) .
  • “Average community count for the quarter was up 47% year-over-year… we expect to reap the benefits of our larger homebuilding platform as our volumes increase” (CEO) .
  • “We ended the second quarter with a net debt-to-cap ratio of 45.4%, which we expect to continue to go down as we generate significant cash flow through the end of the year” (CEO) .
  • “Build conditions have improved significantly… lower stick and brick cost inflation… decline in lumber costs… a margin tailwind” (President, Michael Forsum) .
  • “Our SG&A expense was 13% of home sales revenue this quarter… eliminated 30 positions for an annual run rate savings of approximately $5 million… operate in the range of 11% to 12% next year” (CFO, Chris Porter) .

Q&A Highlights

  • Spec/build cadence and delivery guidance: Management prepared operationally to achieve Q3/Q4 delivery targets; backlog already supports ~75–80% of near-term closings; DFW ramp to contribute more in H2 .
  • Margin bridge Q3→Q4: Improvement expected from geographic mix, easing incentives, new communities with lower costs, and reduced distortion from below-market-rate units in NorCal; selective price increases in Orlando/Arizona .
  • Drivers of Q2 delivery beat: Targeted effort to push available inventory, strong contributions from Arizona and Florida, and initial Texas contribution; proactive mortgage incentive program .
  • Community count trajectory: Expect ~90 communities by Q4; organic growth in low double-digits; elastic buyer response tied to monthly payments rather than macro fear .
  • Cycle time and cost: Cycle times improved to ~135 days on average; rebates ~$2,500/home aiding margins; SG&A actions to enhance returns .
  • Land/inventory strategy: Some inventory build in Texas/Florida supports 45–60 day closing windows; stickiness in land prices pushes more self-development/entitled land sourcing .

Estimates Context

  • Wall Street consensus via S&P Global was unavailable for LSEA during this analysis due to data mapping limitations; accordingly, we cannot provide beat/miss versus consensus for Q2. Future comparisons will be added once S&P Global coverage is accessible.

Key Takeaways for Investors

  • Volume scale is driving operating leverage: deliveries +41% YoY; average selling communities +47% YoY; SG&A down to 13% with a clear path to 11–12% next year .
  • Near-term margin trajectory improving: adjusted gross margin guided to 23–24% in Q4 on mix, easing incentives, and new community contributions; monitor execution in DFW and Florida .
  • GAAP margin headwinds manageable: purchase price accounting and incentives weighed on Q2 GAAP margin; step-ups expected to burn down over H2 and into 2025 .
  • Deleveraging plan credible: revolver recast extends maturities to 2027; management expects significant cash generation to reduce net debt/capital from 45.4% .
  • Operational velocity is a differentiator: faster cycle times (~7 months; some 4.5 months) and spec readiness align with buyer preference for quick move-ins, supporting absorption .
  • Pricing power selective: targeted increases and premium monetization offset incentives in several markets; watch ASP mix shifts as entry-level share grows .
  • Potential capital return optionality: if stock remains below book value, management may prioritize buybacks post-deleveraging, per commentary; track cash flow and leverage milestones .

Additional Data and Context

  • Liquidity at Q2: $330.2M (cash & escrow $106.2M + $224.0M revolver availability); total debt $754.1M post-Antares .
  • Backlog at Q2: 694 homes, $391.1M (ASP $564k); orders ASP lowered YoY ($513k vs $574k) reflecting mix and incentives .
  • Lots owned/controlled: 12,357 total; 57% controlled (asset-light focus) .